Puerto Rico oversight board blasts competing Prepa financing proposal

By Caroline Salls

Pittsburgh, Feb. 15 – The Financial Oversight and Management Board for Puerto Rico said a competing Puerto Rico Electric Power Authority (Prepa) financing proposal has been made by an informal committee of Prepa bondholders and Syncora Guaranty Inc., but that the proposal “is neither a valid financing proposal nor a meritorious reason to deny Prepa’s post-petition financing motion.”

As previously reported, the Commonwealth of Puerto Rico agreed last month to provide a $1.3 billion debtor-in-possession facility to Prepa.

In a Thursday filing with the U.S. Bankruptcy Court for the District of Puerto Rico, the oversight board said “the competing financing is neither valid, nor legal, nor better” than the DIP loan offered by the commonwealth, and “the competing financing provides no indication of when it will be available.”

The oversight board said it contains three different priming liens, “is a thinly veiled attempt to a trustee or receiver” for Prepa and is “insufficient.”

Specifically, the board said “on its face, the competing financing is $534 million, compared to the $1 billion facility Prepa needs.”

In addition, the board said the bondholders’ proposed financing would ultimately be for “a lot less than $534 million” because of a 2% discount, closing fees, interest expenses and alternative interest provisions.

The board said the competing proposal also would not allow Prepa to pay its necessary operating expenses and will mature in two years at most.

“Given the uncertainty about Prepa’s future, a loan that comes due in two years is untenable and irresponsible,” the board said.

In comparison, the financing to be provided by Puerto Rico would mature on the 30th anniversary of the closing date, according to a Jan. 27 filing.

The Commonwealth of Puerto Rico announced its Title III petition filing on May 3, 2017. The case number is 17-03283.

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